IBSL Diploma in Banking and Finance (DBF) Exam flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

CASA ratio

Current and savings account deposits divided by total deposits; a higher ratio lowers a bank's cost of funds because these deposits pay little or no interest.

Cash reserve ratio

The share of net demand and time liabilities a bank must hold as cash with the central bank; it earns no interest and shrinks the funds available for lending.

Statutory liquidity ratio

The minimum share of net demand and time liabilities held by a bank itself in cash, gold or approved securities, maintained to ensure liquidity and solvency.

Banker's general lien

The right to retain goods or securities held for the customer until dues are settled, available unless an express contract or the circumstances exclude it.

Negotiable instrument

A signed document promising or ordering payment of a sum of money to a specified person or bearer; delivery or endorsement transfers title to the holder.

Non-performing asset

A loan on which principal or interest has remained overdue for more than ninety days, after which income is recognised only on cash receipt.

Demand versus time deposits

Demand deposits such as current and savings accounts are withdrawable on demand, while time deposits carry a fixed tenure and charge a penalty for premature withdrawal.

Dual aspect concept

Every transaction affects at least two accounts with equal debits and credits, which is why total debit balances always equal total credit balances.

Trial balance

A statement of all ledger balances at a given date; equal debit and credit totals show arithmetical accuracy but do not reveal errors of principle or omission.

Expected credit loss

An IFRS 9 impairment allowance built from probability-weighted estimates of cash shortfalls over the asset's life, recognised before any default has occurred.

Straight-line depreciation

A constant annual charge equal to the asset's cost less residual value, divided by its useful life, giving an even expense across the holding period.

Provision versus contingent liability

A provision is recognised when a present obligation, probable outflow and reliable estimate exist; a contingent liability is only disclosed in the notes.

Accrual basis

Recording revenue when earned and expenses when incurred rather than when cash moves, so each period's income is matched with the costs that produced it.

Gross domestic product

The market value of all final goods and services produced within a country in a period; on the expenditure side it equals consumption plus investment plus government spending plus net exports.

Money multiplier

The ratio of broad money to base money, roughly the inverse of the reserve ratio, showing how bank lending creates deposits from central bank money.

Repo rate

The rate at which the central bank lends short-term funds to banks against approved securities; it is the main policy signal transmitted to market interest rates.

Real interest rate

The nominal rate adjusted for inflation, computed as (1 + nominal)/(1 + inflation) minus 1 and approximated as nominal minus inflation when rates are small.

Inverted yield curve

A term structure where short-term yields exceed long-term yields, typically reflecting expected policy easing or weaker growth expectations.

Modified duration

Macaulay duration divided by one plus the yield per period; it approximates the percentage change in a bond's price for a one percent yield change.

Balance of payments

A statement of all transactions between residents and non-residents; the current account, capital account and errors and omissions must sum to zero.

Contract of guarantee

A written promise by a surety to pay a third party's debt if the principal debtor defaults; the surety's liability is co-extensive with the debtor's.

Pledge

A bailment of movable goods as security for a debt; possession passes to the lender, who may retain the goods and sell them after notice on default.

Hypothecation

A charge over movable assets such as stock and receivables where the borrower keeps possession; commonly granted to secure working capital facilities.

SARFAESI Act 2002

Indian law allowing secured creditors to enforce security interest over property without court intervention after a sixty-day demand notice to the defaulting borrower.

Limitation period for bank debt

A suit to recover a bank debt must be filed within three years of the debt falling due; a written acknowledgement restarts the three-year clock.

Basel III capital ratios

Minimum common equity tier 1 of 4.5%, tier 1 of 6% and total capital of 8% of risk-weighted assets, plus a 2.5% capital conservation buffer.

Five Cs of credit

Character, capacity, capital, collateral and conditions; a checklist for judging a borrower's willingness and ability to repay and the lender's protection if not.

Expected loss

Probability of default multiplied by loss given default multiplied by exposure at default; it is priced into the loan and covered by provisions over the cycle.

Debt service coverage ratio

Cash available for debt service divided by scheduled debt service; a value below one means operating cash flow cannot meet the repayments as they fall due.

Liquidity coverage ratio

High-quality liquid assets divided by net cash outflows under a thirty-day stress scenario; Basel III requires a ratio of at least 100%.

Substandard asset

An NPA that has remained non-performing for up to twelve months; it becomes doubtful beyond that, and provisioning requirements increase at each stage.

Capital adequacy ratio

Eligible capital divided by risk-weighted assets; it measures a bank's loss absorption capacity and must meet the minimum set by the regulator.